What HMRC Surcharges can be Applied to Tax Deductible Claims?

Tax deductible claims have always been a point of contention for contractors and business owners. All business owners are entitled to deduct expenses from their taxable income, but confusion often exists about what is and what isn’t an ‘allowable’ expense.

Every individual or business is expected to keep accurate records that allow them to provide a complete and accurate tax return. The accepted ‘norm’ for keeping records is six years. HMRC also expects business owners to do everything they reasonably can to confirm their correct position, and this includes checking with an accountant or tax adviser if there’s anything they’re not sure about.

As a contractor or small business owner, it’s essential you know what expenses can and can’t be written off against tax. Get it wrong, whether knowingly or by mistake, and you could have a surcharge and interest added to your bill.  

What Surcharges Apply for Errors on Returns?

Surcharges can be applied to tax bills if there are errors on tax returns which understate or misrepresent the tax liability. If you submit a tax return where claims for expenses have been made which are not allowable, you could receive a surcharge if HMRC believes the error is:

  • Due to a lack of ‘reasonable care’;
  • Deliberate, such as intentionally filing incorrect information;
  • Deliberate and concealed – not only was incorrect information provided but attempts were also made to hide the error.

How is the Surcharge Calculated?

The level of the surcharge you receive is directly linked to the reason the error was made. If an error was made due to a lack of reasonable care i.e. failing to make and preserve sufficient records to complete an accurate return, the surcharge will be less than you would receive for a deliberate and concealed error. The surcharges are calculated in the following way:

  • A lack of reasonable care – Surcharges can be between 0 and 30 percent of the extra tax due;
  • Deliberate errors – Surcharges can be between 20 and 70 percent of the extra tax due;
  • Deliberate and concealed – Surcharges can be between 30 and 100 percent of the extra tax due.    

Reducing a Surcharge

There is potential to reduce a surcharge if the business tells HMRC everything it knows about the error; gives HMRC access to figures to check the accuracy of the return; and helps HMRC calculate what extra tax is due. HMRC can also make deductions based on the quality of information provided.

Need help?

If you have substantial tax arrears, surcharges or penalties and you cannot pay them when HMRC want this can have serious consequences. We can usually help negotiate a settlement. For help call 08000 746 757.

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